Is DHFL’s Securitisation Pool Running Dry?
Dewan Housing Finance Corporation Ltd., which has been shut out of the debt markets since September 2018, is running low on assets that it can securitise to generate liquidity. Such securitisation deals, where a pool of loans is bundled, rated and sold to investors, have been the only source of liquidity for DHFL since the collapse of Infrastructure Leasing and Financial Services Ltd. last year, which roiled the credit markets.
Lenders to DHFL are unlikely to buy large amounts of the company’s loans through securitisation from here on, two bankers in the know told BloombergQuint on condition of anonymity. Investors have already cherry picked the best available retail assets to purchase, these bankers said, adding that the assets left on DHFL’s books may not be attractive to investors.
Since September, the housing finance company has raised about Rs 40,000 crore through securitisation using pass-through certificates and ‘direct assignment’ deals. Of this, about Rs 12,000 crore worth of loans have been sold to public sector banks through direct assignment deals alone, BloombergQuint had reported earlier this month.
The liquidity raised has been used to repay borrowings. As such, fresh lending by the housing financier has come to halt and its loan book size has reduced to Rs 89,387 crore as of March 31.
Of this, Rs 34,818 crore worth of loans are to real estate projects, which banks typically stay away from. Retail loan still account for about Rs 55,000 crore of DHFL’s loan portfolio but banks have turned more selective.
Typically lenders choose loan pools which have had a strong repayment history and where risk of default is low.
While the selection criteria may vary from lender to lender, banks tend to look for portfolios where the loans have shown steady repayment trends over 12-18 months and where the borrowers are salaried, an analyst who regularly rates securitisation pools explained, while speaking on condition of anonymity. Banks also look for loan pools where the EMI-to-income ratio is below 60 percent, the loan-to-value ratio is low, and the loan tenure is less than 20 years, the second of the two bankers quoted above said.
As per norms stipulated by the Reserve Bank of India, housing finance companies can sell loans with maturities of five years and above to banks, after they have held them for at least six months. Housing finance companies are also expected to retain 20 percent of the loans on their own books.
DHFL did not respond to an email on Saturday seeking details on future securitisation deals.
Lenders to DHFL have already signed an inter creditor agreement, appointing State Bank of India as the lead lender. SBI will now negotiate terms of the restructuring plan on behalf of the lending consortium.
According to a July 15 statement from the housing finance company, it intends to finalise a resolution plan by July 25 and hopes to restart lending operations by August.
As part of the restructuring plan, the company is seeking Rs 1,200-1,500 crore worth loans every month from banks. These loans will be used to create fresh assets, three people with direct knowledge said.
DHFL is also seeking an extended tenure on a portion of its liabilities. The remaining loans could be converted to long-term equity like instruments, these people said.
SBI did not respond to an email sent on Saturday.
Separately, DHFL is continuing talks to bring in a strategic investor to infuse equity. While talks have been ongoing, a formal transaction is yet to be announced.
The company may need more funds to restart its operations and keep its branches running. However, lenders may not be too keen on extending these funds, unless the current promoter dilutes shareholding considerably, said the first of the two bankers quoted above. The consortium of lenders would like to see a new owner take over the company and continue running its operations.
As a last resort, lenders have discussed an option to take over the company and run its operations themselves. However, this option would only be exercised if no resolution plan is finalised within the 180-day period prescribed by the Reserve Bank of India.
DHFL owes over Rs 55,000 crore to banks in loan repayments.